2016 (12) TMI 1554 - HC - Income Tax

Validity of reopening of assessment - notice issued against non-existent Company - company amalgamated - Held that - This Court in the case of Khurana Engineering Ltd. Vs. Deputy Commissioner of Income-Tax reported in 2013 (2) TMI 128 - GUJARAT HIGH COURT held that once the original assessee is ordered to be merged into another company, consequently not in existence, notice for assessment / reassessment against the transferor Company shall not be sustainable. As in the present case when the impugned notice is issued in the name of the original assessee, the same has been issued against the non-existent Company, as after the order passed by this Court sanctioning the scheme of merger and the original assessee - transferor Company Pvt. Ltd. was ordered to be merged into one M to M Traders Private Limited and thereafter even the said M to M Traders Private Limited is further ordered to be merged into the petitioner - assessee Company, the impugned notice against the non-existent Company is not not permissible. - Decided against revenue

Summary

Issues:
Challenge to impugned notice under section 148 of the Income Tax Act, 1961 for reopening assessment for the Assessment Year 2009-2010 in the case of the original assessee - M/s. Accurate Finstock Private Limited.

Analysis:

1. Challenge to Notice Issued Against Amalgamating Company:
The petitioner sought to quash and set aside the notice issued under section 148 of the Income Tax Act, 1961 to reopen the assessment for the Assessment Year 2009-2010 against the original assessee, M/s. Accurate Finstock Private Limited. The main contention was whether such a notice against the amalgamating company could be sustained. The petitioner argued that as the original assessee had been merged into another company and subsequently into the petitioner company, the notice against the non-existent company was impermissible.

2. Merger and Existence of Original Assessee:
It was established that the original assessee, M/s. Accurate Finstock Private Limited, had been merged into another company and later into the petitioner company. Despite the issuance of the notice in the name of the original assessee, it was noted that the company was no longer in existence post-merger. The respondent had supplied reasons for the notice, and objections raised by the original assessee were disposed of, leading to the petitioner challenging the notice through a Special Civil Application.

3. Legal Precedent and Arguments:
The petitioner relied on the decision in the case of Khurana Engineering Ltd. vs. Deputy Commissioner of Income-Tax, emphasizing that once a company is merged and ceases to exist, any notice against the transferor company is not sustainable. The respondent argued that the notice was valid as the assessee company was in existence during the relevant assessment year. The Division Bench's decision in the Khurana Engineering Ltd. case was discussed, where it was held that notices against non-existent transferor companies post-merger are impermissible.

4. Court's Decision and Rationale:
After considering the arguments and legal precedents, the Court ruled in favor of the petitioner. It was concluded that once a company is merged and ceases to exist as per the sanctioned scheme, any notice issued against the non-existent company cannot be sustained. Citing the Division Bench's decision, the Court quashed and set aside the impugned notice under section 148 of the Act and the reassessment proceedings. The judgment highlighted that assessments should be made on the transferee company post-merger, and separate protective assessments can be conducted if necessary.

In conclusion, the Court found in favor of the petitioner, emphasizing the legal principle that notices against non-existent transferor companies following a merger are invalid. The impugned notice and reassessment proceedings were therefore quashed and set aside, with no costs imposed in the case.